Bitcoin plunges to lowest price since 2020 amid broader selloff

Bitcoin plunges to lowest price since 2020 amid broader selloff

Bitcoin plunges to lowest price since 2020 amid broader selloff

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The price of one bitcoin briefly fell below $27,000 on Thursday morning, the cryptocurrency’s lowest price since 2020. The world’s leading virtual currency rallied later in the day and is now trading at $28,600. But that’s still 20 percent down from a week ago and 57 percent down from last November’s peak.

Bitcoin’s decline is part of a broader cryptocurrency sell-off. Ethereum is currently down 8 percent in the last 24 hours and 28 percent in the last week. Additionally, Cardano (39 percent), Dogecoin (36 percent), and Litecoin (32 percent) have all fallen over the past week.

Perhaps most alarmingly for the cryptocurrency world, “stablecoin” Tether lost its peg to the US dollar early Thursday, briefly falling to 96 cents. Tether is now trading at $1 again.

Paolo Ardoino, the CTO of Bitfinex, the company that created Tether, tweeted on Thursday morning that the company had redeemed $300 million worth of tether to defend the binding “without a sweat.” He promised to cash in as much as needed to keep the price in line with the dollar.

tightening of financial conditions

No one knows why cryptocurrencies move on any given day. But a likely factor driving the cryptocurrency’s broad selloff is the broader macroeconomic environment.

In late 2021, with inflation raging, the Federal Reserve signaled it would begin tightening monetary policy. The Fed made good on its promise by raising interest rates in March. Last week, the Fed raised interest rates by 0.5 percent, the most significant one-day hike in two decades.

Rising interest rates tend to depress the market value of all assets. Tightening financial conditions have led to a broad-based fall in the stock market, with the S&P 500 down 18 percent from its December peak.

High interest rates have a particularly strong impact on speculative investments. The tech-heavy NASDAQ index is down 29 percent from its November peak.

Tesla stock has fallen 40 percent since last November. Two of its peers, Lucid and Canoo, are down 71 and 76 percent, respectively, from their November highs. Canoo recently warned that it could run out of money before production of its first car.

The past six months have been brutal for “meme stocks.” GameStop stock is down 63 percent compared to last November, while AMC stock is down 77 percent over the same period.

All of these assets skyrocketed in value in early 2021 as the Fed and Congress pumped record amounts into the economy. In early 2022, the Fed began reversing this process and pulling money out of the economy to raise interest rates. And as cash has become scarcer, people who need money have sold speculative assets to get it.

The cryptocurrency sell-off can be understood as part of this broader trend. And it may not be over yet. The Fed signaled that it plans to raise rates more aggressively in the coming months.

Tim Lee was an Ars associate from 2017 to 2021. In 2021 he launched Full Stack Economics, an independent email newsletter about business, technology and public policy. You can subscribe to his newsletter here.

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